Know Your Rights Regarding Noncompete Agreements

Is a former employer accusing you of violating a noncompete agreement? Are you being asked to sign an agreement upon entering or exiting a job? You should always seek advice from a lawyer before signing any noncompete contract with a current employer, future employer or former employer. Our lawyers at NachtLaw can assist you by identifying your goals, and then advise you on the legal limits and risks associated with noncompete agreements and how they relate to your future plans. Have questions about how employees can protect themselves from overly broad agreements? Our attorneys are experienced in reviewing noncompete agreements, advising parties as to the enforceability of the provisions and fighting them when necessary. We regularly represent clients when a former employer threatens or initiates litigation.

What Is A Noncompete Agreement?

A noncompete agreement is a contract, either included in your overall employment contract or as a separate document, that generally states you will not engage in the same type of business as your employer should you leave your current job. More specifically, it is designed to protect the employer from you using the knowledge or “trade secrets” gained during your employment to compete against the employer at a different company performing a similar type of business.

When Is A Noncompete Agreement Valid Under The Law?

If you live in Michigan, there is no clear-cut answer. Certain agreements are enforceable, some are not and some are likely to be limited in their application. To be enforceable, an agreement must be reasonable in time and geographic scope and limited to protecting the legitimate interests of the employer. Agreements that are unlimited in time or scope will often be narrowed by reviewing courts. However, if the noncompete agreement attempts to stifle legitimate competition, it may violate laws regarding unfair trade practices and may be completely unenforceable.

Under What Circumstances Can I Be Asked To Sign A Noncompete Agreement?

Often, employees are asked to sign a noncompete agreement when they officially begin working for a new company or during the exit interview process should you be terminated. An employer may even request you sign a noncompete agreement at a job you have been working at for some time simply because he/she decided to “get smart” or someone told him/her it was a good thing to do to protect his/her interests.

What If I Choose Not To Sign A Noncompete Agreement?

An employer may choose not to hire you if you refuse to sign a noncompete agreement. If you are already employed and confronted with a noncompete agreement, the enforceability may depend on your employment status. If you are employed with “at will” status and choose not to sign the noncompete agreement, the employer may choose to terminate you. If you are employed as a “just cause” employee and you choose not to sign the noncompete agreement, the Michigan courts have found that the refusal to enter into such agreement individually does not constitute “just cause” for termination. On the other hand, if you should choose to sign the agreement, the employer must retain you for a “reasonable” amount of time after. If you are fired without reasonable cause shortly after the agreement is signed, the noncompete agreement could be nonbinding. In other words, the employer cannot use this type of contract as a subterfuge to rid him/herself of a possible future competitor; he/she cannot have dismissed you in “bad faith.” Some courts have ruled agreements void unless a new benefit — such as a higher salary, a bonus, more fringe benefits or a promotion — is promised in exchange for your signature.

Are Noncompete Agreements Legal In Michigan?

Michigan has a “reasonable standard” approach to assessing noncompete agreements. Although disfavored in Michigan, they are not completely void. A noncompete agreement must be reasonably narrow, in that it protects an employer’s reasonable competitive business interests. It must be reasonable in its duration, geographical area and the type of employment or line of business. If an agreement is too broad, the courts generally choose to narrow it. The degree of reasonableness is often based upon the amount of discretion involved in the area of employment. Upon termination or resignation, most noncompetes require that the company’s “trade secrets” remain confidential.

What Is Considered A “Reasonable Competitive Business Interest?”

A reasonable business interest must be something greater than mere competition, because a prohibition of all competition is in restraint of trade or commerce. To be reasonable, the agreement must protect against an employee gaining unfair advantage in competition with his employer. Reasonable agreements may protect such legitimate interests as trade secrets, confidential information, close contact with the employer’s customers or customer lists, or cost factors and pricing. An employer may NOT reasonably prohibit future use of general knowledge or skill.

What Qualifies As A Trade Secret? What Qualifies As Disclosure Of A Trade Secret?

In the Michigan courts, a trade secret is understood as “all information not generally known to the public.” The basic idea is that in order to qualify as a trade secret, information must be “secret.” The employer must have taken reasonable steps to safeguard information; it may not be readily discoverable by the public. The information or trade secrets cannot be disclosed or used to gain an unfair advantage at a competitor, but should not prohibit the employee’s future use of general knowledge or skill. In certain limited circumstances, however, misappropriation or disclosure of trade secrets or confidential information may be inferred from an employee’s duties at a competitor. Where trade secrets are inseparable from your new work, an employer may be able to prevent you from performing certain work at a competitor.

Let Us Help You Sort Through Noncompete Agreement Matters

If you are asked to sign a noncompete agreement, if you are leaving a company and wondering what restrictions an employer can legally impose or if you have been threatened with a noncompete or trade secret enforcement action, you should contact an attorney immediately. The lawyers at NachtLaw can help you move through a difficult transition while avoiding damage to your career. Contact us today to schedule a confidential consultation.